Yongye Group: Trust-Based Management PDF Case Study (2012)

Yongye Group: trust-based management Pablo Cardona, Jiming Bao and Isabel Ng Pablo Cardona is based at Christmas Eve 2010, over 1,500 employees from Inner Mongolia Yongye Group, Inc. China Europe International (hereafter referred to as ‘‘Yongye Group’’) gathered to attend the...

Yongye Group: trust-based management Pablo Cardona, Jiming Bao and Isabel Ng Pablo Cardona is based at Christmas Eve 2010, over 1,500 employees from Inner Mongolia Yongye Group, Inc. China Europe International (hereafter referred to as ‘‘Yongye Group’’) gathered to attend the 2010 annual employee Business School (CEIBS), meeting in Beijing. The meeting reached its zenith at 7:30 p.m. In total, 50 employees Shanghai, China. stepped onto the lush red carpet to receive keys to their automobile rewards. Ten more Jiming Bao and Isabel Ng stepped to receive keys to a new apartment as their reward. The lucky recipients included are based at Fudan R&D project managers, first-line technicians and regular employees in the boiler room. The University School of attendees gave a standing ovation. The stage was filled with pride, humility, gratitude as the Management, Shanghai, recipients stood together beaming with happiness at these gestures of trust. China. One reason employees were so excited was that these rewards were not based on their past performance, but on their commitment to objectives in the future. Before this event, these employees had signed with Yongye Group a contract called ‘‘Letters of Responsibility for Work Objectives’’. In this contract, they defined their work objectives in the next period and applied to the company for rewards that were linked to those future objectives. After examining the applications, the company granted the reward of cars and apartments, as if the employees had already fulfilled the agreed-upon objectives. Mr Wu Zishen, the Founder and Chairman of Yongye Group, called his award model the ‘‘advanced reward incentive system.’’ This model had been implemented for three years at the senior management level, and for the first time, it was applied to ground-level employees. As the founder of a biotechnology enterprise in the agricultural sector, Wu Zishen sensed a huge business opportunity hidden in dealing with the lack of trust evident in this particular sector. Building trust was the essence of Mr Wu’s management philosophy: We establish and promote the Advanced Reward Incentive System with the aim to give employees 100% trust and transform the employees’ work attitude from a passive ‘‘being told to work’’ to a more proactive ‘‘I want to work’’ mentality. However, this incentive system implies that the Company will take on high risks while doubling trust in the employees’ work ethics. After the first years of the implementation of the advanced reward incentive system, Wu Zishen was still considering several issues: can this reward incentive system be sustainable enough to inspire Yongye employees to become ‘‘employee intrapreneurs’’? Can the culture of trust be passed on effectively level by level to the grass-root employees? Aside from cars and apartments, what else can be used to reward employees in advance? This case has participated in the EFMD case competition. History of the Yongye Group Disclaimer. This case is written solely for educational purposes Wu Zishen was born in the Inner Mongolia Autonomous Region, where he worked as a civil and is not intended to represent servant for the local government. In 1994, Mr Wu established the Yongye Company, and in successful or unsuccessful managerial decision making. the first few months during the start-up period, Yongye struggled to survive financially. The author/s may have In September of 1994, the company got involved in the distribution of emerging disguised names; financial and other recognizable information e-dictionaries and, for several years, they became the general agent in Inner Mongolia for to protect confidentiality. the sales of electronic consumables. DOI 10.1108/20450621211294380 VOL. 2 NO. 8 2012, pp. 1-21, Q Emerald Group Publishing Limited, ISSN 2045-0621 j EMERALD EMERGING MARKETS CASE STUDIES j PAGE 1  In 2001, Wu started to think about how to move Yongye into a more promising path. In September of that year, he visited Professor Gao Jing, who later developed the ‘‘Shengmingsu’’ technology. Wu invited him to be the chief expert at Yongye Biotechnology Research Center carrying out R&D on the project for fenugreek, brown coal, weathered coal and peat coal. That same year, Wu was inspired by Qian Xuesen’s thesis entitled ‘‘Creation of the Agricultural Knowledge-Intensive Industry: Agriculture, Forestry, Grass Industry, Sea Industry and Desert Industry,’’ and he started paying more attention to the desert agricultural business. He purchased some land from the Inner Mongolia Autonomous Region, Shanxi Province, to grow desert plants such as milk vetch, cistanche salsa, and fenugreek. In July 2003, Yongye purchased 200 mu of land from the Hohhot Jinshan Economic and Technological Development Zone, and built the Yongye Biological Industrial Park. In 2005, adopting the research achievements of Professor Gao Jing and using advanced technology, Yongye Group began manufacturing Yongye Shengmingsu, a special agricultural nutrient made of raw material including lignite and coal. Yongye Shengmingsu had three performance advantages: 1. Increase crop yield by 10-30 percent. 2. Advance and prolong the picking time of crops. 3. Improve the quality and taste of crops. In addition, Yongye Shengmingsu also enhanced the absorption and disease prevention ability of the crops. Long-time use of the product could improve the soil degraded by the abuse of chemical fertilizers as well as reduce the use of fertilizer and pesticide (Exhibit 1). In 2006, Yongye began its strategic integration of resources for agricultural markets, building the brand of Yongye Shengmingsu as the star product of the group. At the same time, Wu developed the enterprise spirit of ‘‘Born at the right time and never give up’’, and established the corporate mission: ‘‘sending wealth to farmers, bringing health to people.’’ Yongye’s success was also quickly recognized by capital markets. On 3 September 2009, Yongye International became listed on NASDAQ with a stock code YONG. During the past several years, Yongye raised approximately US$150 million of investment including a recent US$50 million from Morgan Stanley. The income statement of Yongye International for 2008-2010 is shown in Exhibit 2 (Table EI). Business model of Yongye Shengmingsu In order to ensure that Yongye Shengmingsu could penetrate the market rapidly and effectively, Wu Zishen and his team laid out an innovative business model – the ‘‘3 þ 1’’ three-party wealth creation model, that is, a model to ensure a win-win-win for three parties (i.e. Yongye, distributors, and farmers). The model was based on ‘‘Blue Ocean marketing strategy’’, including the integration of manufacturers and distributors, and one-stop services for farmers. Product concept Yongye named its core product ‘‘Shengmingsu’’ and defined it as a ‘‘nutrient’’ to differentiate it from common fertilizers (including foliage fertilizer) and pesticides. The use of the name was also intended to highlight its health effects on animals and plants, as well as the ecosystem, including the absorption of nutrients, improving disease prevention and soil protection and enhancing food safety. Marketing strategy Through innovative thinking, the marketing model for electronic consumables was brought into the agricultural industry. Yongye Group adopted the strategy of ‘‘seeing is believing’’ and set up many ‘‘demonstration fields’’ and ‘‘demonstration villages’’ based on in-depth j j PAGE 2 EMERALD EMERGING MARKETS CASE STUDIES VOL. 2 NO. 8 2012 investigation in rural markets. The idea was to leverage the word of mouth of farmers and villagers (Exhibit 3). Treating distributors as employees In January 2007 the Yongye distribution channel system experienced three development phases: full-care service, apprentice training and cloning of little Yongye. In the second half of 2009, the management platforms began their recruitment to construct the sales team. Within a year, around 20 percent of management platforms were preliminarily equipped with awareness of basic concepts of channel management; and some platforms increased their sales personnel team. In addition, Yongye provided special capital to support the organization and construction of the platforms and the team, making themselves ‘‘little Yongye.’’ One-stop agricultural service terminal The provincial-level distributors sold Yongye’s products to county-level distributors, to key accounts, such as large farms, or through promotional events to farmers. County-level distributors sold Yongye’s products to independently owned Yongye-branded stores, which served as village-level retailers of Yongye’s products (‘‘branded retailers’’), as well as to large farms and through promotional events to farmers. Branded retailers distributed Yongye’s products directly to farmers in rural villages and towns. More than 28,000 independently owned agriculture retailers joined Yongye branded retailer network by the end of June 2011. Ai Yibei, Manager of the authorized Shengmingsu distribution store of Sungen Town, Jiyang, Shandong Province, had been deeply influenced by the chain-like coordination service of Yongye Group from promotion to training. He explained his experience: I started to get in touch with Shengmingsu before New Year’s Day of 2009. When the regional manager of Yongye Group came to introduce Shengmingsu to me, I refused him at the time, because I felt the cooperation conditions were too high. When he visited me to introduce this product again, I heard their presentation in detail and got deeply interested in the Yongye Shengmingsu project. If they would assign people to help me with advertisement and promotion, just like what they said, the sales volume should be good. During the first day of collaboration, the regional manager of Yongye Group determined the place and size for store decorations. Several days later, my store was decorated, including the door head, KT board, scroll, honor wall, etc. In the aspect of promotion, the personnel of Yongye did a lot work around my store. They handed out newspapers to people, implemented lecture courses for them, and built a lot of demonstration fields. Meanwhile, their advertisement broadcasted in Jiyang TV station also made a reference to my store, especially the wheat demonstration fields around my store. Good effects had been achieved in disease resistance, anti-lodging and yield increase. This product is really excellent. So I started to vigorously promote the Shengmingsu product, and I could sell several hundreds of bottles a day at the peak time. Besides, personnel of Yongye made promotion of my store. As a result, the customer flow in my store increased exponentially. When farmers came to my store to buy Shengmingsu, they also would buy other products, which increased the overall sales volume. I carefully made a calculation and found the profitability of Shengmingsu is quite considerable. In April, I came to Beijing to participate in the training course organized by Yongye Group. To be honest, I had never participated in such a high level training, which inspired me a lot on my attitudes about life and business. In sum, Yongye helps us to make promotion and training. Once these things are ready, it is unnecessary to worry about the market. To do business is really simple if only you find the right partner. Organizational culture of Yongye The biggest challenge for Yongye to sell Shengmingsu in the agricultural market was to gain credibility about its products. Wu Zishen believed the key to success was to cultivate trust with the farmers. At the same time, Wu Zishen realized that he had to create a corporate culture based on trust within his own company. This culture was based on three pillars: 1. vision, mission and values; 2. a leadership style characterized by confidence and empowerment; and 3. a family-like environment. j j VOL. 2 NO. 8 2012 EMERALD EMERGING MARKETS CASE STUDIES PAGE 3  Vision, mission and values Wu Zishen believed that his undertaking was not merely a simple sales business, but a much greater project – a company that offered solutions to China’s three agriculture issues (agriculture, farmers and rural areas). He set up the following vision, operational philosophy, mission and code of conduct for Yongye. The vision of Yongye is to help improve the three agricultural issues, and to provide tools to enrich farmers: 1. Yongye hopes to promote and enhance human health and living standards by lowering the level of contamination in animals and plants. 2. Yongye hopes to make the dreams of 900 million farmers and herdsmen come true in the area of green farming and herding. 3. Yongye hopes to become a training ground to help customers and employees to develop expertise in the field. Operational philosophy of Yongye – SEEK the truth, focus on the core and be open to the world. The root of Yongye is based in millions of farmers and herdsmen. Each Yongye person shall remember, care about and give back to the farmers and herdsmen. Mission of Yongye – sending wealth to farmers and bringing health to humanity. Code of conduct of Yongye – loyal, sincere, honest and earnest. Be loyal to the undertaking, be sincere to people, be honest in behaviors, and be earnest in working. On this basis, Wu Zishen paid special attention to promote the organizational culture, focusing on trust and sense of family. He hoped himself and his management team would establish a leadership style characterized by empowering people, educating people by exemplary behaviors and caring about subordinates. In order to achieve this goal, Wu Zishen chose very carefully his top management team. An organizational chart (Figure E1) and the biography of the top management team are presented in Exhibit 4. Confidence and empowerment Many people were deeply impressed by a sentence from Wu Zishen during his speech at the 2010 annual meeting: I have made up my mind to withdraw from operations and management. The future development of the Company will change from the phase when Chairman Wu’s words count, to when it counts without Chairman Wu’s words, and to when Chairman Wu’s words don’t count. The following words reflected the trust and empowerment he granted to his new operation and management team: I want to advocate here and request all employees to render more tolerance and understanding to our young management team. Please give room for them to become managers and future leaders through continuous learning. I hope there can be more young people from your team emerging as leaders and developing with Yongye. The President of Yongye, Cheng Tan, had a clear understanding of the empowerment philosophy: When we work together, Chairman Wu always says that you can do whatever you want. After he defines and agrees on the overall direction, he almost let go of the management process. Chairman Wu trusts me and gives me the empowerment to get the job done. I must do so for my subordinates. This empowerment was transmitted down to different levels. Zhao Shijun, the Manager of the Operation and Production Department 1, described the guidance that his supervisor provided him: j j PAGE 4 EMERALD EMERGING MARKETS CASE STUDIES VOL. 2 NO. 8 2012  He is very strict to work for, so you have to keep learning and growing. I think his management ideas are quite similar to those of the chairman. He will define the overall direction and stay away from the details, but he will correct any deviation from the overall direction. He takes care of you like a big brother. When we were in Wuchuan Site, he convened us weekly to care about our life, asking us why we wore such thin clothes. These simple courtesies and help in life make you feel that he really cares about you. An employee, Gao Yaling, recollected: The preparation process of the company brochure involved a lot of decisions around selecting the leader’s photo and words. Yet the leaders always said with a smile, ‘‘Yaling, you can make the decision by yourself; I believe your decision is the best.’’ For an ordinary employee, this space of freedom shows a lot of trust. Zhang Xuehua, an employee from Beijing Headquarters said: When you have an idea, leaders will always provide space for you, support your new product development and project cooperation, and help you establish a platform. Chen Xiaohong, a new employee mentioned: Although I am just an ordinary cashier, I can still have room for promotion in Yongye Group. As a part of Yongye Group, I am engaged in the cause to benefit human health, and I have taken the cause of Yongye Group as mine. I will improve myself to make this cause better and long-lasting. Sense of family Yongye had unique methods to make the employees have the true feeling that the Company is their home and their colleagues are like brothers and sisters. Zhang Xuehua recalled: When I came to Yongye Group in 2007, there were not many employees in this company and we had more chances to meet Mr Wu. Mr Wu is a very kind person and he cares for employees very much. At that time, fewer than 20 new employees worked in the Channel Department; I could meet them every day but did not remember their names. However, what impressed me most was that Mr Wu always called everyone’s name during meetings, even though he visited this department only several times. This care really comes from the heart. Chen Xiaohong had her own experience of the fraternal environment of the company: When I came to this company for the first time, I was particularly impressed by the banner ‘‘Welcome Home, Brothers and Sisters!’’ This made me feel very happy. In the company, the standard offices and clean desks indicated that this was a large company. After joining the company, at first I didn’t adapt to my work and often made small mistakes, which were forgiven by my leaders. Sometimes I was not qualified for some of the work. In those cases, I was carefully instructed by my leaders personally until I could do it. I feel the colleagues here are very nice, as if they were my brothers and sisters. In the past, I always cried when facing difficulties. But now I don’t give up easily because there is someone supporting me as if they are my family members. Now, I can face any difficulties more bravely. When talking about the leaders who cared for her like parents, another employee could not hide her excitement and emotion: Our leaders are interested in both our work and our emotions, meaning that they care for our work and life. Leaders do not only treat us as employees, but also care about our daily life. They care for us as if they were our parents. In a business trip, since I am a female, my boss asked me in advance if it was convenient for me to go on this trip. That day we took the train at 5:00 a.m. and we received a short message from our boss reminding us to pay attention to safety outside. I was really moved. As soon as we arrived at the destination, I sent a message to my boss to let him know we were safe, although I had a lot of luggage to carry. Qi Biao, a postgraduate student in grade two of the Environment Department of Beijing Normal University, came to Yongye as an intern and then became the personal assistant of Wu Zishen. Wu Zishen accepted him as an apprentice and gave him many opportunities to practice with the actual business operation: j j VOL. 2 NO. 8 2012 EMERALD EMERGING MARKETS CASE STUDIES PAGE 5  It is just one year since I came to the Company. Although I am an intern, the Company has spent 70 to 80 thousand Yuan on my training. When I came for the position of assistant, I only hoped to open my mind and learn from my regular experience, but now this achievement has exceeded my expectations. In consideration of life’s pressures on the youth employees, Wu Zishen planned out a radical wealth target for his employees: a dream of being car owners in three years, the owners of apartments in five years and financial freedom in eight years. After eight years, when they can afford to retire, Yongye people do not have to work only for money; they can afford to pursue their self-value and do something they really want to do. If employees want to start a business, they can choose projects that have passed the preliminary feasibility testing in the Technical Incubation Park, and Yongye will provide the support. Wu Zishen launched the Chairman Business-starting Fund in 2010 to encourage those employees who have such intentions to pursue their self-value. Yongye also gave some ‘‘pocket money’’ to the parents of employees. In 2010, Wu Zishen launched the Kindliness Fund for parents, in which 10 percent of the employee’s monthly salary was transferred to the account of the employee’s parents. Under this plan, the company and the employee each assumed 5 percent, respectively. Wu Zishen announced this fund as a sign of gratitude to the employee’s families: I hope the family members of our employees can feel the sincere gratitude from all the people of Yongye Group. Since we intend to make a contribution to our society, I think we should first truly put our gratitude into effect instead of maintaining it as a slogan. So we establish this fund to hope that more family members of our employees will share our results and achievements. Advanced reward incentive system Background In the start-up phase of Yongye Group, the rapid growth of the enterprise attracted a lot of talented people from all walks of life. How to give these people opportunities to make full use of their abilities, do their best to create value for the company, and share the return from the company’s growth? Mr Wu had some thought on this: Our advanced reward incentive system is praised in a lot of places. Actually, it is very simple. It originated from the concept of being a teacher. If I need to care for a bad child, the best way is to let him be the monitor. We can treat our employees and distributors in a similar manner, i.e. to let employees take responsibility. If employees have developed as sense of ownership, they will put in their effort. This is what we called employee intrapreneurship. Wu Zishen favored simple management concepts when talking about talent incentive: If you have talent and come to Yongye, we can work out an objective together. You are responsible for the implementation, while I am in charge of the supervision. The Company will equip you with resources, and I will pay you in advance the reward for tasks to be completed. This is the advanced reward, so you have to work hard, right? The practice of the advanced reward incentive system was implemented during the early business period of Yongye, and more recently in 2010, Wu Zishen extended this system and implemented it in a large-scale in the company. Main contents The advanced reward incentive system was first used as an incentive for medium and upper management. It consisted of three core management instruments: advanced reward incentive, percentage-based performance appraisal, and a ‘‘10-times penalty for every fraud found’’ policy. As the core of Yongye’s incentive system, the advanced reward incentive system was the result of combining Yongye’s corporate culture and its management ideas. The three core systems were interconnected in implementation: the advanced reward incentive was the prerequisite; the percentage-based performance appraisal was the safeguard; and the ‘‘10-times penalty for every fraud found’’ policy was the deterrent. Wu Zishen described this system vividly as ‘‘Good People Mechanism,’’ which continuously provided Yongye with enthusiastic employees who ‘‘want to work and want to work hard.’’ j j PAGE 6 EMERALD EMERGING MARKETS CASE STUDIES VOL. 2 NO. 8 2012 Advanced reward incentive system. The basis for the implementation of the advanced reward incentive system was performance-based. By changing the year-end reward (as in traditional management) into the year-beginning reward, the company gave the benefit to employees at the beginning of the year. This system was actually a two-tiered system, as it was applicable to managers at or above the middle level from the first day, and to lower-level employees with over three years in the company. At the beginning of each year, the company issued the ‘‘Letters of Responsibility for the Work Objectives’’ to all departments. Based on the ‘‘Letters of Responsibility for the Work Objectives’’, the departments considered whether the employees had the potential to complete the agreed-upon objectives. Upon approval, the company would grant in advance the reward in the form of cars, apartments in kind or other allowances, provided that the employee managed to keep a satisfactory level of performance. Yongye awarded 50 cars and ten apartments to qualified employees in the year of 2010. The cost of the system was around 25,000,000 RMB. As the net profit in 2010 was 48,437 million RMB, the system costed about 11 percent of net profit. Also, as the awarded cars were calculated as fixed cost for the company, there was no provision made in the financial statements for these rewards. Percentage-based performance appraisal. The percentage-based performance appraisal was intended to enhance employee’s proactivity. In this appraisal, the employees made percentage appraisals on their own completed work for the month, in accordance with the monthly and annual work plan. Then; their superiors and the human resource department reviewed their self-appraisal. The total score for the appraisal was 100 points. This included performance indicators, comprehensive indicators (ability and attitude), and the completion status of the work log, and various statements and forms. Employees who scored over 95 points in the appraisal were marked as excellent, and those who had been marked excellent for a successive six months could get one level of salary raise. Employees who scored between 85 and 95 points were marked as satisfactory. Finally, those who scored below 70 points for a successive three months or those who scored below 60 points for a single month were subject to demotion or transfer of position. Any penalty arising from the percentage-based performance appraisal was turned over to the welfare fund established by the company for welfare expenditure for employees. An example of the calculation is presented in Exhibit 5. The ‘‘10-times penalty for every fraud found’’ policy. The ‘‘10-times penalty for every fraud found’’ policy was set to ensure the strict implementation of all regulations of the company, and to eliminate fraud and irresponsibility. That is, a penalty would be given to the parties concerned at ten times the base of the economic amount (all penalties would be turned over into the welfare fund established by the company for employee welfare expenditure). This regulation was applicable to all persons of the Yongye Group. All records of appraisal made by superintendents to subordinates, all the subordinates’ work plans, and all logs were archived and examined by the HR department. Implementation result of the advanced reward incentive system The effect of Yongye’s advanced reward incentive was intended to affect employees’ attitude. Typically, new employees would show a wait-and-see attitude because they have not built up trust in the company. However, the advanced reward incentive is a signal of trust by the company. It can facilitate the development of trust with the employees and can make the employees transfer their attention from ‘‘what reward can I get for the input I made?’’to a focus on the completion of objectives and improvement in performance. Wang Lili, one of the middle managers granted with the advanced reward, joined Yongye in 2010 and now was Yongye’s Financial Director for Capital Markets. In accordance with the stipulation of the advanced reward incentive system, she was informed of her qualification to obtain a car when she entered the company. She recalled: j j VOL. 2 NO. 8 2012 EMERALD EMERGING MARKETS CASE STUDIES PAGE 7  Since I had joined this Company not long before and hadn’t made any contribution to the Company, I felt pressured when I accepted the reward. The only thing I could then do was to transform that pressure into drive, and enhance my ability so that it could match the reward. After half a year’s work in Yongye, I have connected myself with Yongye in my heart and I am always worried about whether I can make more contribution to the Company. In the Company where I worked before, the pride in work came more from the affirmation of self-ability, but now what I am concerned about more is what I have done for Yongye. Also, the effect of the advanced reward incentive system could be reflected in the influence on the employees’ family and social network. It made their families gradually understand Yongye’s culture, and the meaning of working at Yongye. Chen Qiuju, an ordinary employee of Yongye, joined Yongye in 2004. She obtained a commodity house at the end of 2010. She recalled: When I was informed that I had been awarded a house through the advanced reward incentive system, I was so grateful that I made up my mind to work hard. None of my family or friends believed this. Both my parents are ordinary farmers. They are moved by Chairman Wu and asked me repeatedly to do my best at work. My friends and classmates (whom I had once borrowed money from when I wasn’t paid my salary on time) began to understand why I insisted on staying at Yongye at those difficult times. The advanced reward incentive system is the embodiment of the idea held by the Company of ‘‘improving myself in a poor situation and helping others in a good situation.’’ The reward spurs me on to be more excellent and make more contribution to the Company. It is also an encouragement to the employees who are not yet rewarded. We all think it is most important to do a good job, not just to get a reward when reaching certain level. Yongye is like a big family. I have a deep affection for each tree in the Yongye factory. I love the factory and the family. Ma Chunyin joined Yongye in 2007 and became an employee in the business management department. She was awarded a car in 2010 when she reached her three-year tenure. She said: When I heard of the advanced reward incentive system, I was not sure whether it would actually be implemented, but when Chairman Wu said at the last (2009) annual meeting that it would be implemented and my name was on the reward list, I was so happy. After I got this reward, my relatives began to feel curious about our company. My parents encouraged me to work hard all the time to be worthy of this reward. My classmates admired me very much. It is also an encouragement amongst my colleagues. Furthermore, since I have the car, I can always drive my colleagues to and back from work. As we have more chances to get together, our relationships are becoming closer. What I must do now is to work hard so that I can be worthy of the reward. The company set up the economic target for employees: ‘‘own a car in three years, own a house in five years.’’ As of the beginning of 2011, about 40 employees in total had been rewarded with cars and ten employees had successfully completed their five-year plan and obtained the reward of a home. When Wu Zishen was asked, ‘‘what else can be used to inspire your employees besides cars and apartments?’’ he smiled and replied: The rewards of Yongye are unlimited. The reward is not only in material things, but also in the quality of life that helps to enhance our well-being. With the development of the company, every employee can share the achievement of the company at any time. Notes 1. Intrapreneurship is a term to express entrepreneurial activity within an organization. 2. (1911-2009) A famous scientist in modern China. 3. A mu is a Chinese measurement equivalent to 797.3 sq yd, or 0.1647 acres. 4. In original:. This expression means that because one has a unique mission to fulfill, one has the responsibility of pursuing the mission with a special resilience. 5. Some of the important challenges facing China’s agriculture include soil environmental deterioration and hidden troubles of food safety caused by abuse of fertilizer and pesticide. In the past, in order to solve the shortage of agriculture products in China, chemical fertilizers and pesticides were widely used, as a symbol of revolution in agriculture. However, the equipment and technology for chemical j j PAGE 8 EMERALD EMERGING MARKETS CASE STUDIES VOL. 2 NO. 8 2012  fertilizers and pesticides were backward, and abuse was common. According to the research by the Resource and Environment School of China Agriculture University, China occupies 7 percent of the world’s arable lands and consumes 35 percent of the world’s nitrogenous fertilizer. This directly led to general soil acidification on more than 90 percent of China’s farmland. Additionally, the abuse of pesticides caused the death of numerous animals and polluted the ecological environment. Keywords: 6. This policy is related to the concept of filial piety in China. In China, the filial piety responsibility does Organizational culture, not only refer to giving respect and love to the parents, but also include financial support. Employee motivation, Trust, 7. This chart corresponds to the Board of Directors and the Top Management Team as of June 2011. Advanced reward Yongye Group is not a stand-alone business entity. Management team members reside in their own business entities under the ‘‘Yongye’’ umbrella. incentive system, China, 8. The 2008 Chinese milk scandal was a food safety incident in the People’s Republic of China, Food safety, involving milk and infant formula, and other food materials and components, adulterated with Incentives (psychology) melamine. Exhibit 1. Yongye Shengmingsu ‘‘Yongye Shengmingsu’’ is a kind of foliage fertilizer with fulvic acid as the main nutrition component that plays its function by applying on the surface of the crop leaves to get absorbed. Foliage fertilizer made its quiet debut in China in the 1990s and some brands emerged with a certain influence in markets like Henan Luoxiaowang, Guanxi Penshibao, Xinjiang Haodilong and Bayer in Germany. Among all the foliage fertilizers, fulvic acid foliage fertilizer is of high quality with high concentration and full dissolution, and powerful in anti-drought and resistance factors. It can restrain the dormancy of plants so that they can absorb various nutrients in a continuous cycle. The plants are enhanced in a physiologic mechanism and can grow rapidly with high quality and increased output. As an environmentally friendly, water-soluble and high-effective fertilizer containing many active substances, this product is rich in organic compound, humic acid, nitrogen, phosphorus, potassium and medium and trace elements. Its core raw material – humic acid, has high capacity of positive ion exchange, resistance to hard water, chelation, cushion, adsorption and catalytic ability. At present, a series of 18 products have been developed for various crops according to the market demand. These products can effectively supplement nutrient for crops, promote growth, and enhance the photosynthesis and activation of enzymes. They can decrease water loss by effectively controlling the opening and closing of stomata. They can enhance the resistance of crops to drought, cold, diseases and reverse. They can produce synergy with all kinds of chemical pesticides to increase the pest killing and sterilization and decrease the usage of pesticide and pesticide residue. These products are easy to use and has obvious advantages in enhancing the use ratio of fertilizer, saving water for agriculture, reducing environmental pollution, increasing output and enhancing quality. Relevant achievements B Preparation method of a kind of plant nutrients, acquiring the National Invention Patent in 2008. B Research and development of plant nutrients, passing the technical achievement identification carried by Technology Committee of Inner Mongolia Autonomous Region in 2008. Experts all considered that for development and industrialization of this achievement, the technical level has arrived to the internal advanced level. It is possible to increase the yield of field and economic crops by 10-20 percent and the yield of fruit and vegetable crops by 15-30 percent via spraying this product. B Research and development of plant nutrients was awarded the First Price of Technical Progress of Huhhot in 2009. B Investigation on extraction of MFA and research and application of its green agricultural products was awarded the First Price of Scientific and Technical Progress of Inner Mongolia Autonomous Region in 2010. B Investigation on extraction of MFA and research and application of its green agricultural products was awarded the Technical Progress Prize of All-China Federation of Industry and Commerce (ACFIC) in 2010. j j VOL. 2 NO. 8 2012 EMERALD EMERGING MARKETS CASE STUDIES PAGE 9  B This project was ranked in the specific great achievement transfer projects of state technology department and great projects of Huhhot in 2009. Exhibit 2. Income statement of Yongye International for 2008-2010 Table EI Annual data (in US$1,000, rounded) Period ending 31 December 2010 31 December 2009 31 December 2008 Total revenue 214,092 98,093 48,092 Cost of revenue 94,834 45,989 23,166 Gross profit 119,258 52,103 24,927 Operating expenses – – – Research development 4,852 1,690 – Selling general and administrative 54,607 19,010 11,239 Non-recurring – – – Others – – – Total operating expenses – – – Operating income or loss 59,799 31,403 13,688 Total other income/expenses net 2,427 (23,836a) 1,593 Earnings before interest and taxes 62,200 7,497 15,281 Interest expense – – 3 Income before tax 62,200 7,497 15,277 Income tax expense 10,868 4,997 864 Minority interest (2,895) (305) (1,102) Net income from continuing ops 48,437 2,196 13,311 Net income 48,437 2,196 13,311 Notes: aThis figure is due to changes in fair value of derivative liabilities in 2009; ( –) equates to negative; without brackets equates to positive Exhibit 3. The first promotion battle of Yongye Shengmingsu: ‘‘Laoting Campaign’’ Laoting, a county 230 km away from Beijing, is the most important vegetable planting base, which is abundant in corn, wheat, rice, cotton, peanut, etc., enjoying the good fame of ‘‘Granary of East Hebei.’’ In December of 2007, Yongye selected Laoting as the first important experimental site to promote and market Yongye Shengmingsu. With the guidance of Xu Nan and Feng Weimin, who was the General Manager of ‘‘Business to Business,’’ 22 people from various places of China organized a marketing group. They spent two and a half months visiting 13 towns and more than 500 administrative villages to make detailed surveys on the structure of crops, the situation of farmers, the contact information of planting experts and village cadres, the situation of agricultural stores, the market promotion conditions of each important village, from which they prepared plans, guided implementation and recommended a ‘‘5 þ 1’’ implementation scheme. The first step was to build a ‘‘Demonstration Field’’. The most important objective was to visit villages and persuade the farmers to try. Thanks to the company’s efforts, more than 50 demonstration fields were built, covering 13 towns in Laoting. The second step was to develop network points. More than 30 authorized sales network points were developed within a month with more than 50 technical service stations built at the same time, which work as the local entities of Yongye operation platform and bear the front stage management functions. The third step was to design the image and manage the terminals. Make sure the front image of each network point is consistent and unify the types, amount and position of exhibits to give prominence to the integral sales image of Yongye products. The fourth step was to organize meetings and make sales promotion at terminals, divide sales personnel into small groups (three people per group), and assign them to towns with authorized network points to help network points sell products. The fifth step was to train network points and maintain channels. Besides these five steps, Yongye developed a marketing campaign, including TV, wall and car body advertisements. For example, a promotion film about Yongye Shengmingsu was broadcasted in the ‘‘Fruit Tree Market’’, an agricultural program with the highest audience rating in Laoting TV station, to explain and publicize the effects of Yongye Shengmingsu by j j PAGE 10 EMERALD EMERGING MARKETS CASE STUDIES VOL. 2 NO. 8 2012 real examples of local farmers. This film was broadcasted during four months and had a lot of impact on the local farmers. Based on the success achieved in Laoting, Yongye Group copied this model in several locations, such as Xiantao, Hubei Province, and standardized this marketing model to quickly copy and clone it in other areas in the province, and then at the national market. By the end of 2010, Yongye sales channels and network points had been established in each province of China, except for Tibet. Exhibit 4. Top management team of Yongye Group Figure E1 The organization chart of the board of directors and the top management team as of June 2011 Board of Directors Chairman: Wu Zishen Vice chairman: Sun Taoran Director: Zhao Qiang President of the Group Cheng Tan VP (Marketing) VP (R&D) VP (Operation) VP (Strategy) VP (Social) CFO Xu Nan Tong Baosheng Tan Jun Larry Gilmore Yin Ping Yu Yue Biography of the top management team Cheng Tan. He took up the position of the President of Yongye Group in June 2009 and holds the responsibility for the overall operation of the group. Previously, Cheng Tan had directly or indirectly managed assets around 10 billion Yuan and had become a director in several companies. He has rich experience in managing big and medium companies. He met Wu Zishen in 1989, and since then they appreciated each other’s ability and kept close relations for years. Tong Baosheng. He took up the position as the Vice President of Yongye Group in August 2008, and was responsible for the research and development of core products. He was the chief scientist of Yongye. In 1985, Tong Baosheng met Wu Zishen at the ‘‘Vegetable Basket Project of Inner Mongolia’’ and developed a close friendship with Wu Zishen. He joined Yongye for two main reasons. On one hand, he hoped to ‘‘work on something meaningful on a broader platform,’’ but on the other hand, he always respected and appreciated Wu Zishen. After joining Yongye, Tong Baosheng placed emphasis on the research and development of Shengmingsu for animals and devoted himself to the research of the Shengmingsu product. He also cooperated with Beijing University of Agriculture in the construction of the ‘‘BUA Science and Technology Demonstration Park’’. In January 2011, he was honored by being declared as the ‘‘CCTV-Three Agriculture Person of 2010.’’ Tan Jun. He joined Yongye in August 2009, and became the Vice President of the Group in charge of the Operation Center. He had worked in large state-owned enterprises for years and has rich experience in front-line practice and management. When he joined Yongye he recommended four middle managers. When asked about the reason, he said: We’ve had confidence in each other for years, and we all identify with the spirit and mind of Chairman Wu and Yongye’s undertaking. It is a good platform for development. j j VOL. 2 NO. 8 2012 EMERALD EMERGING MARKETS CASE STUDIES PAGE 11  Xu Nan. He joined Yongye in December 2006. He was in charge of the development and established the sales system for Yongye. He was the former North China Regional Manger of Hi-Tech Wealth, and had many years of experience in electronic product sales. When asked about joining Yongye, he recalled, ‘‘I have to admit it’s driven by passion. I have a lot of faith in Shengmingsu, and also in Chairman Wu and Yongye.’’ Xu Nan directed the ‘‘Laoting Campaign’’. He applied his management experience in the IT industry to the agriculture industry, and put forward the model of ‘‘Seeing is believing and adverse sales’’ in a creative way. He is called by the nickname of ‘‘Young Marshal’’ in the industry and media. Yu Yue. Yu Yue became the CFO of Yongye International and was in charge of capital markets and corporate finance. Prior to joining Yongye in 2009. Yu Yue had management experiences in both the USA and China. He has an MBA degree from Stanford Business School. When asked about the motivation of joining Yongye, he said, ‘‘I respect Chairman Wu. I was attracted deeply by his vision. I regard Yongye’s undertaking beneficial to our nation and our people.’’ In September 2009, he helped translate the vision of Wu Zishen and Yongye to NASDAQ and the American investment community. Yin Ping. Yin Ping was one of the founders of the Group, currently serving as the Vice President in Public Interest. Yin Ping has 16 years of practical experience in the marketing, distribution management, and business administration in information technology, home appliances, electronic consumer products. She had rich practical experience in managing the development of small enterprises, and had been consulting for others companies. She is currently studying her EMBA degree at Tsing Hua University. Larry Gilmore. Larry Gilmore joined Yongye in 2007, and became the Vice President of the group in charge of developing strategy and investor relations. Mr Gilmore is knowledgeable of both Chinese and American cultures, with rich experience in cross-cultural management, and has been facilitating exchange and cooperation among Chinese and American enterprises for a long time. Exhibit 5. Percentage-based performance appraisal The result of the percentage-based performance appraisal is used to calculate the actual monthly compensation for employees: Actual compensation for the month ¼ monthly salary base £ percentage of performance appraisal for the month: The percentage of performance appraisal for the month is calculated as 100 percent for those who score 95 points (included) in the appraisal. For those who score below 95 points, the percentage is calculated as the corresponding scores (94 points for 94 percent and 80 points for 80 percent). For example: an employee ZXH’s monthly salary base is 7,000 Yuan. On the 28th day of each month, she must do a self-appraisal of her work attitude, skill and performance in accordance with her post statement, roles and responsibilities, work plan, summary, log, and various statements and forms submitted each month, and send it to the superintendent and the HR department for review. The result of her review will be connected to her actual compensation for the month as follows: B If the appraisal result of ZXH is between 95 and 100 points, her actual compensation for the month will be 7,000 £ 100 percent ¼ 7,000 Yuan. B If the appraisal result of ZXH is 94 points, her actual compensation for the month will be 7,000 £ 94 percent ¼ 6,580 Yuan. B If the appraisal result of ZXH is over 100 points, her actual compensation for the month will be 7,000 £ 104 percent ¼ 7,280 Yuan. In addition to the 100 points for the employees’ self-appraisal, Yongye also grants the managers the right to add 50 points to a management score. The principle is as follows: each employee has a superior who knows his or her performance in this month very well, and in some special situations – for instance, failure to complete the original objective due to a temporary change of objective task or an emergency the happened to the employees’ families and so forth – the managers can use their discretion to add to the appraisal score j j PAGE 12 EMERALD EMERGING MARKETS CASE STUDIES VOL. 2 NO. 8 2012 and reward the prominent contributors or to create a remedy for employees with a score below 60 points. However, managers must use the management score with the principle of fairness, equality and openness. Anyone who is found to be not strict or to abuse the management score will be subject to ten times penalty for every fraud found. For example, the boss may know that ZXH in example (2) failed to complete the task in the monthly plan because she completed a more important task and created more value. In order to reward this proactive behavior, the boss can grant ten points to her. Thus, the actual appraisal result will be 104 and her compensation will be like in case 3. About the authors Professor Pablo Cardona is Visiting Professor of Management at CEIBS. From 2008-2011, he was a full-time professor in IESE’s Department of Managing People in Organizations. He received his MBA from IESE and PhD in management from University of California, Los Angeles. Professor Cardona’s interests lie in the areas of leadership, management development and cross-cultural research. Jiming Bao is a Professor in the Department of Business Administration at Fudan University School of Management, Shanghai, China. Isabel Ng is an Assistant Professor in the Department of Business Administration at Fudan University School of Management, Shanghai, China. j j VOL. 2 NO. 8 2012 EMERALD EMERGING MARKETS CASE STUDIES PAGE 13